This week we have the eagerly awaited FOMC on Wednesday and with inflation increases, will the Fed finally raise rates?
First off, let’s see what’s happening to the greenback
The US dollar had a strong end to the week with the EUR/USD dropping by 0.8% to 1.11566 for the first time in 10 days
- It also fared well against the sterling as the GBP/USD lost 250 pips.
Are we looking at a rate increase later this week? Let’s see what the data’s saying
- Last week, the Consumer Price Index (CPI) for August was released and showed an increase by 0.2% surprising analysts who were expecting an increase of only 0.1%.
- This contrasts sharply to the rate for July which was 0%.
- The similarly popular core CPI ex Food and Energy showed an increase in August by 0.3% while the rate for July was 0.2%.
- This is the largest rise for the last six months and is the result of the medical sector’s increase of costs by a surprising 1%, and also the rise of rent levels by 0.3%.
- Some traders are with the view that the Fed will remain prudent and refrain from increasing interest rates until their December meeting, although some of the Federal Open Market Committee’s (FOMC) members will have more reasons to justify their view for a rate hike sooner than later.
- In all fairness, the Fed was estimating to increase interest rates several times during the current year but market uncertainty boosted by UK’s decision to exit the EU, combined with discouraging economic data, provided limited arguments to do so.
- On the other side of the fence, we also have other economic data released last Thursday reinforcing the perception that the Fed is likely to hold off from adjusting interest rates.
- Retail sales for August decreased by 0.3%,
- Continuing jobless claims for the week ending 02 September increased by 2.143 million
- While industrial production for August also decreased by 0.4%compared to July’s 0.6% increase.
What will you trade on the big day?
- This Wednesday, 21 September at 18:00 GMT the FOMC and interest rate decision is due – will the Fed hold off as markets are expecting or will they surprise and deliver an increase sooner than expected?
- have a look at our dealCancellation feature that allows you to cancel losing trades within 60 minutes of opening. A useful risk-management tool for events like this one.